When searching for the most lucrative commercial real estate opportunities, investors must carefully analyze various factors. These include pro formas, supply and demand dynamics, market and economic conditions, as well as the overall condition of a property. In a recent video released by Marcus & Millichap titled “How Changing Behavior is Reshaping CRE,” Senior Vice President and National Director of Research and Advisory Services John Chang emphasized the importance of also examining people’s behaviors when making investment decisions.
Chang highlighted that understanding how many office-using jobs are being created in an area is crucial when evaluating office properties. He also noted that analyzing remote work trends has become increasingly important in light of the pandemic.
In recent years, there has been a significant shift in people’s behavior due to COVID-19. While urban areas experienced shutdowns with most office workers transitioning to remote work arrangements, this change presented an opportunity for individuals to choose where they wanted to live based on personal preference rather than proximity to their job location. This resulted in large out-migrations from cities like Chicago, Los Angeles , New York City ,and San Francisco at an average rate of 120000 per month during 2020-2021.The Sunbelt region saw a surge in population growth as these individuals relocated there instead.”Real estate investors quickly capitalized on this trend by investing heavily into markets across Florida,Texas,and Arizona,” said Chang.He further added that Austin witnessed 14% increase while Nashville reported growth rate at12 .8%, Charlotte NC,Salt Lake city grew by6 .6%.
This influx led not only residential but also commercial development such as retail centers warehouses,and offices spaces.In fact,in terms total completions compared existing inventory,Austin,Las Vegas,Nashville Phoenix,and Charlotte will lead nation followed metros like LA,Bay Area Chicago,Cleveland Portland which have seen limited construction activity.
However,the current scenario is changing.Chang pointed out that migration towards Sunbelt region seems be slowing down while move-outs from major urban cores are decreasing. This could potentially create lucrative opportunities for commercial real estate investors as the performance of this sector is driven by both supply and demand.
While Sunbelt markets saw a surge in development to meet the growing population, northern cities slowed down their pace due to timing lags and time-to-complete factors.”As a result,some of these Sunbelt markets may experience an oversupply in short-term,” Chang observed.However,this could be advantageous for investors looking at cities that were previously losing population but have now resumed development post-pandemic.
In addition to analyzing property conditions,economic trends,and market dynamics,Chang advised viewers to also consider timing lags and overall disconnect between population migration and development when making investment decisions.”When evaluating real estate investments,it’s important not just look at the physical property,but also take into account who will use it and why,” he concluded.
